On April 3, 2020, New York Gov. Andrew Cuomo signed several bills implementing the state’s fiscal year 2021 budget bill. Among other measures, the bills addresses various tax-related issues including personal income tax rate cuts, green economy incentives and the state’s IRC conformity. Most notably, New York is among the first states to address new federal interest deduction limitation rules.
Conformity to the Internal Revenue Code
New York has updated its IRC conformity to the version in effect on March 1, 2020 for personal income taxes. New York had previously conformed to the IRC, with various exceptions, on a rolling basis. These provisions also apply to New York City’s personal income taxes.
Accordingly, New York has effectively decoupled from the federal interest expense limitation rules (section 163(j)) and other provisions enacted under the CARES Act for tax years beginning in 2019 and 2020 for personal income tax purposes. The state has also decoupled from section 163(j) for corporate income tax purposes. This means the state will not permit any additional interest expense deduction that may arise out of the increase in deduction available in federal taxable income. Note that New York had historically conformed to federal interest expense limitation rules. The aforementioned changes will apply to New York City’s corporate income taxes as well.
Continued phase-in of personal income tax rate cuts
The fiscal year 2021 budget makes no changes to the previously enacted phase-in rate reduction for personal income taxes, for those in certain tax brackets. For tax year 2020, the personal income tax rates that have been reduced are as follows:
Filing Status: Single and married filing separately:
- Over $21,400 but not over $80,650, the tax is $1,042 plus 6.09% of excess over $21,400; (reduced from 6.21% in 2019)
- Over $80,650 but not over $215,400, the tax is $4,650 plus 6.41% of excess over $80,650; (reduced from 6.49% in 2019)
Filing Status: Married individuals filing joint returns and surviving spouses:
- Over $43,000 but not over $161,550, the tax is $2,093 plus 6.09% of excess over $43,000; (reduced from 6.21% in 2019)
- Over $161,550 but not over $323,200, the tax is $9,313 plus 6.41% of excess over $161,550; (reduced from 6.49% in 2019)
Consistent with the state’s prior ‘green business’ efforts, the budget bills provide for tax credits to be awarded in connection with business efforts to create jobs and invest capital in qualifying green investments. Increased credit amounts are provided for Excelsior jobs tax credits, investment credits and research and development credits.
The budget bills also address a number of miscellaneous tax and credit-related provisions. A brief summary of highlighted provisions is below:
- Extends the credit for hiring a qualified veteran one year through 2021
- Extends certain real property oil and gas charges to March 31, 2024, a three-year extension
- Reduces the tax on alcohol tax on liquors containing not more than 2% of alcohol by volume to zero, from one-cent per liter
- Extends credit caps for the Excelsior credit an additional five years through 2029 and provides that no tax credits may be allowed for taxable years beginning after Jan. 1, 2040, a ten-year extension
New York, a state that has historically conformed to the IRC on a rolling basis, is the first state to specifically address and decouple from parts of the CARES Act. COVID-19 is expected to have a significant impact on many state budgets and it is anticipated that more states address the CARES Act in the coming months. As we continue to monitor these changes, taxpayers that plan on taking advantage of the provisions in the CARES Act should consult with their state tax advisors.